It’s very agonizing for me when I see and hear the constant onslaught by our own people – particularly public officials being paid to make our lives better – against the Naira. I have written about this severally in the past but it bears repeating for emphasis and comprehension. Maybe we suffer some sort of Attention Deficit Disorder (ADD) in these parts for the state of our nation points to something like that. We find it hard to reach a resolution on anything and stick to a plan for any length of time. We live for the moment. We act on a spur. We maximize our gratification whenever we have the opportunity. People get into government and celebrate that they have arrived. These are some of the psychological underpinnings of our issues as a nation. And from the sociological end comes cultural pressures and the constant contest that we have mounted against each other along tribal and religious lines. One reason behind this present article is also psychological – the power of repetition. Not much shall be achieved in a nation with our type of make up if one does not continually ram down and repeat what needs to be done. Many of our intelligentsia however believe they should say little and leave the country to figure things out. Well, she hasn’t. We are still in crisis and these intellectuals qualify as voyeurs – people who love to see agony on the face of others.
My concern is still about the Naira, our currency, the embodiment of our economy and sovereignty. Our currency. A country’s currency is central to its existence in the modern age, and one of the few planks by which its progress could be measured. A weak currency is a weak economy and a weak people. Whereas some countries prefer relatively weak currencies in order to promote exports, they will never allow their currencies to become worthless, and will only take that relatively weak position if their products are traded internationally and are price elastic. Even at that, such countries tightly manage their currency around a certain band. No country allows its currency to drift away endlessly. For the top countries in the world, their currency is extremely important to them. Any attempt for anyone to seriously toy with their currencies are viewed as outright war and responded to in that manner. It is recorded in textbooks of international economics that Saddam Hussein’s attempt to seriously diversify the proceeds of his crude oil sales to Euro signaled his death. The Americans would not even allow their Caucasian cousins to trump them in that game. Another true story is that prior to the Second World War, the world’s top currency was the British Pounds, by far. The Brits owned the vastest lands around the world – most of that under colonial rule. Even the USA did not extricate itself until the late 1800s. The real gist is that the Americans refused to join World War II until the Germans had almost pounded Britain to extinction. Their joining, and the H-Bombs led to a resolution of the war. However, in the Bretton Woods meeting of 1944 and 1945, the Americans made the British pay for past sins. The Pound Sterling was devalued by 60% in one day, as the Americans forced a new policy of Dollar dominance through. All major currencies were to be pegged to the US Dollar, while the US Dollar was pegged to Gold.
This history is very important. Economics as a field has lost its way today because of the deliberate ignorance of history and the deluded embrace of only mathematics. Meanwhile, the study of human psychology is central to the understanding of economics and human beings cannot be modeled mathematically. Well, they can. But you will regret it as we did in 2008-11 in what is now known as the Great Recession, among other experiences. And so, in 1971, President Richard Nixon abandoned the gold backing of the Dollar. The production of gold could no longer keep up with the volume of countries’ foreign reserves pouring into the USA. Countries also saw that their reserves no longer could be withdrawn in gold as promised. Some were itching to withdraw and diversify. The US Dollar would have crashed, just as the Pound Sterling before it. And so, one day Nixon yanked off the rug, instructing Treasury Secretary George Schultz to do everything ‘in the interest of the USA, to DEFEND the Dollar and move against SPECULATORS’. I laugh at folks here who say Nigeria should not defend its currency. Our economy is not nearly as developed or sophisticated as the US economy was in 1971. We would be lucky to achieve that level of self-sustenance even in 50 years. Who do we think we are?
I believe this is enough background for the raison d’etre of this article, which is to inform our public officers to lay off the Naira especially in their speeches and public opinions. On the basis of productivity, the Naira will have a bad enough time, not to talk of when those we pay to serve us add petrol to the fire, hastening the devaluation of the currency. Indeed, part of their remit as people being paid with taxpayers’ money, is to talk up the Naira. As they like to compare themselves and the country to America, they should take note that they will never hear any American public official slagging off the dollar, or publicly speculating about the value of the currency. I have tried to teach as much as I know here, to the effect that self-fulfilling prophecies and our ‘confessions’ about the Naira, becomes the reality. Whenever a well-placed public officer who should know comes out openly to say the Naira is overvalued, overrated, should find its true value, etc., what they have done is blow a dog whistle for speculators to take position. Now, nothing is wrong with speculating. But there are speculators who are so powerful, when they place their bets against your currency, they force your hands to devalue and they make huge profits, while your people suffer more inflation, hunger and despair. George Soros buckled the Pounds Sterling in 1992 and made a billion dollars in one day which they still call ‘Black Wednesday’. The Brits learned. We here have refused to learn, repeating mistakes over and over in increasing magnitude.
This background is very important to lay if Nigeria is going to be spared more years of economic turbulence and widespread agony. Our economy is still very much import-led because since 1947 when we established a university, we haven’t been able to get our higher institutions to drive innovation. We depend on other countries entirely. Whereas we cannot expect to continue to indulge, what is more difficult to do is to get our people to be innovative around what we need and to stay on course. Devaluation of currency should therefore be a calculated, deliberate, cautious, strategic, considered affair, not something we recklessly do, or allow outsiders, speculators, shorters, chancers and other such people push us into, or do on our behalf. The experience since 1986 when we embarked on this one-way journey to perdition shows that what we have been having were Eastern Promises. They have never panned out the way we were told. The promises that our exports will sell more when we devalue are false and farcical. I had Uncles who went into teak wood and other commodity exports in the 80s but got their fingers burnt because they were not apprised with other factors that make for export success – notably phytosanitary conditions – and the fact that not every importer from abroad is straightforward. Alfred Marshall (1842-1924), and Abba Lerner (1903-1982) also proved that for devaluation to work, a country’s export must be positively responsive to price cuts, meaning that because we devalued, our trade partners should buy more of what we have to sell. This is not the case with Nigeria. Our crude oil is NOT in that zone. Our other exports are raw in nature and subject to other vagaries especially issues of standardization, measurement, phytosanitary issues, trust and what have you.
I must also warn – again – that the policies of full deregulation of fuel markets and that of devaluation present a dilemma. You cannot do the two together, because one undoes the other and leads you into a spiral. One must therefore go. And I suggest it should be the market deregulation of the petrol downstream sector, while we hold firmly to the value of the naira within a band. Any attempt to devalue the naira and deregulate at the same time leads to cyclical fall in naira value and creation of new subsidies therefrom.
I will now list a short history of statements around the Naira since 2015. These statements were made sometimes by those in government or outside of it. I hope that with this history, those who will manage our economy going forward will not repeat same egregious mistakes:
September 2015 – Buhari vows not to destroy the Naira
October 2015 – VP Osinbajo says devaluation of the Naira is not an option
January 2016 – President Buhari insists on non-devaluation of the Naira
February 2016 – VP Osinbajo agrees with Buhari on non-devaluation of the Naira
February 2016 – IMF disagrees with Buhari and INSISTED on Naira devaluation
May 2016 – VP Osinbajo hinted at Naira devaluation. Said he ‘hoped to persuade the CBN to change some of its policies to improve foreign exchange supply’. Naira traded officially at N197 and unofficially at N318. The VP stated that Nigeria will ‘substantially re-evaluate’ its foreign exchange policy and adopt a ‘more flexible approach.. soon’, towards ‘attracting more capital into the system and ease business’
May 2016 – Mr Bismarck Rewane advocated that Naira should be allowed to ‘adjust’ to N230 and that this will see the unofficial/parallel/black market drop from N318 to ‘around N255’
January 2017 – Osinbajo reads riot act to CBN on Naira Value, Naira traded at N315 officially and N490 unofficially. He insisted on closing the gap i.e. devaluing to meet the unofficial rate.
January 2017 – Senator Ike Ekweremadu asks the CBN to ‘bridge the gap’ between official and unofficial Naira rates. Naira traded officially at N315, and unofficially at N490. What ‘bridge the gap’ means is to devalue to unofficially rate under the deliberate deception that unofficial rates will stay put. Ekweremadu spoke of the need to ‘restore investor confidence’.
February 2017 – Nigeria under Osinbajo’s Acting Presidency mulls a ‘broad Naira devaluation’ – Reuters. Bismarck Rewane says ‘It’s the beginning of a process to a more flexible exchange rate. There is panic. The system has collapsed. Dollars have disappeared from exchange bureaus at airport’.
June 2021 – CBN Governor told investors that Naira is overvalued by just 10%. Naira traded officially at N410 to the US Dollar. Source Reuters.
October 2021 – Devalue Naira NOW! – Vice President Osinbajo advises. Says ‘we cannot get new dollars into the system where the exchange rate is artificially low’. Naira traded officially at N411 and unofficially at N565.
August 2022 – Mr Rewane, a member of President Buhari’s economic advisory council, says Naira is OVERVALUED by a whooping 200%. This means that the Naira should trade officially at about N1,400, from the current position of N440.
October 2022 – Bank of America says Naira is 20% (twenty percent), overvalued.
October 2022 – CBN Announces plans for currency redesign. Speculators cause panic. Naira crashes at unofficial market to N900. ‘Experts’ predict Naira will crash to N1,000 by year end.
November 2022 – VP Osinbajo expresses worry over Naira’s exchange rate. Insists on market determination. Cautions against arbitrage. Says ‘addressing the exchange rate will entail finding a mechanism for increasing supply and moderating demand’.
December 2022 – CBN announces cashless policy, releases newly designed Naira, warns of stricter policies to curb money laundering, corruption, currency abuse, tax evasion. Naira stabilizes at N445 officially and N750 unofficially. Unofficial rates likely to taper further as policy takes hold
December 2022 – Elements in the National Assembly launch manhunt for CBN governor with the connivance of the Directorate for Security Services (DSS), declare CBN governor a ‘terrorist financier’. Court throws out application seeking approval for arrest, says no evidence was presented to justify the summons. Likelihood that new anti-money-laundering policy will be a game-changer and rein in the excesses of Nigeria’s traducers, including those who play games with the Naira
From the above trajectory, we can see that textbook economics have failed Nigeria but commonsense will always work. It is incredible that even as those ‘textbook’ ideas failed, we used them again, and again. The idea that once you move official rates to equate black market rates, the black market rates will remain where they are and arbitrage opportunities will disappear, has never worked, will never work. For as long as people demand foreign exchange for illegal activities – bribery, narcotics business, kidnapping etc – the black/unofficial/illegal market will continue to exist. Inefficiencies in the official market – oftentimes deliberate – will also continue to feed this unofficial market. But we must never kowtow to the vagaries of that market. In fact, official authorities (be it the CBN or the Economic Advisory Council), should strategically ensure that the unofficial markets are not given as much news coverage as it presently enjoys. Once the inefficiencies of the official markets can be curbed, the market should be ignored and driven totally underground where whoever engages with it should understand that they do so at their own risk. Open street trading of foreign exchange should be totally outlawed and the Bureaux de Change trimmed in number to no more than 100 with branches nationwide and the capacity to collect remittances and do local and international transfers within tight limits, while documenting every transaction.
But more importantly, paid government official, advisers, even top bankers should mind their statements on and about our sovereign currency. Imagine an adviser saying the currency is overvalued by a whole 200%! And this statement attracts no reprimand or at least some sort of demand that it be backed up by open data? There is of course a temptation to sound enlightened while merely echoing the ideas of foreign entities who are not interested in the progress of our nation. Getting from where we are to where we need to be will require deep thinking, unorthodox, out-of-the-box ideas, a deep sense of history, and by all means, patriotism. That is how countries make real progress. I am not saying that the Naira should be at par with, or stronger than the US Dollar. We don’t have the pedigree, economic sophistication, and history on our side. Heck, we haven’t even started using innovation from our ivory towers and seem not to be eager to do that as those ivory towers prefer tucking their heads in the laps of government. However, a more considered, strategic, deliberate approach to currency management, sans the imputation of funny agenda, deliberate snafus, capitulation to speculators, and several gaffes, may have put the Naira somewhere around N200 today even if a black market exists in the shadows. God help Nigeria. Merry Christmas and Happy 2023 to my dear Readers.